Buying a Home With a Small Deposit: What Options Could Be Available?

You may be able to buy your first home in Australia without a 20% deposit. Depending on your circumstances, the options could include the Australian Government 5% Deposit Scheme, a standard low-deposit loan with lenders mortgage insurance, a family guarantee, the Help to Buy shared equity scheme, or state-based support.

But these options do not all solve the same problem. Some reduce the deposit a lender requires. Some reduce the size of the loan you need. Others help you build or preserve your savings.

The useful question is therefore not simply, “Can I buy with 5%?” It is, “What is stopping me from buying—and which pathway addresses that obstacle without creating a bigger problem later?”

First, identify the gap you are trying to close

A small-deposit buyer can be dealing with one or more of three separate gaps:

1. The deposit gap: your income could support the loan, but you have not saved 20% of the property value.
2. The borrowing gap: you have some savings, but the amount a lender may offer plus your deposit is not enough for a suitable home.
3. The purchase-cost gap: your deposit is close, but transfer duty, conveyancing, inspections and other costs reduce the money available at settlement.

A low-deposit loan can help with the first gap. Shared equity may help with the second. Grants and duty concessions can help with the third. A first home buyer may qualify for more than one form of support, but eligibility does not automatically mean the combination is suitable or permitted.

Before comparing pathways, separate the money needed for your deposit from purchase costs and a post-settlement buffer. Falcon’s guide to how much money you need to buy your first home explains why those amounts should not be treated as one pot.

Option 1: The Australian Government 5% Deposit Scheme

The Australian Government 5% Deposit Scheme allows eligible first home buyers—or buyers who have not owned property or land in Australia during the previous 10 years—to buy an owner-occupied home with a minimum 5% deposit. Eligible single parents and single legal guardians may be able to buy with a minimum 2% deposit.

The Government provides a guarantee to a participating lender for part of the loan. This can allow an eligible buyer to borrow at a high loan-to-value ratio without paying lenders mortgage insurance.

From 1 October 2025, the expanded scheme has:

• no applicant income caps
• no waitlist
• unlimited places for eligible buyers
• higher property price caps than the former Home Guarantee Scheme.

You must generally be at least 18 and an Australian citizen or permanent resident, buy a home in Australia to live in, meet the first-home or 10-year ownership rule, use a participating lender and stay within the relevant property price cap. Both the purchase price and the lender’s assessed property value must be within the cap.

What it can solve

The scheme can reduce the time needed to save a 20% deposit and can avoid the cost of LMI. You still own the property and remain responsible for the full home loan.

What it does not solve

The guarantee does not increase your income or make the repayments more affordable. You must still satisfy the participating lender’s credit, serviceability and genuine-savings requirements. You also need enough funds for costs that cannot be added to the loan.

A 5% deposit also means starting with a larger loan relative to the property value. Repayments and total interest can therefore be higher than if you waited and contributed more.

Option 2: A low-deposit loan with lenders mortgage insurance

Some lenders offer standard home loans with deposits below 20%. If the loan-to-value ratio is above the lender’s threshold, lenders mortgage insurance—or LMI—may apply.

LMI protects the lender, not the borrower. If you cannot repay the loan and the property is sold for less than the debt and recovery costs, the insurer may compensate the lender and may seek to recover the shortfall from you, depending on the circumstances.

The premium is generally a one-off cost. It may be paid at settlement or, where the lender allows, added to the loan. Capitalising it reduces the cash needed upfront but means borrowing the premium and paying interest on it.

When paying LMI could be considered

LMI is often described only as a cost to avoid. A better comparison is the cost and risk of buying sooner versus waiting longer.

Buying sooner may be worth considering if the repayments are comfortable, you have stable income and a cash buffer, and the property suits your plans for long enough to absorb buying and selling costs. Waiting may be better if the loan would leave no flexibility, the deposit is borrowed, or your employment and plans are likely to change.

There is no universal answer. Compare the LMI premium, the larger loan, repayments at higher rates and the savings you could build by waiting.

Option 3: A family guarantee

With a family guarantee, an eligible family member offers security—often limited to a portion of the equity in their property—to support your home loan. This may help reduce the effective LVR and avoid or reduce LMI without the guarantor contributing cash to the purchase.

A limited guarantee is generally preferable to an unlimited commitment because it defines the part of the loan being supported. The structure and release conditions vary by lender.

The important risk

A guarantee is not a character reference. It is a legal and financial commitment.

If you fail to meet the loan obligations, the lender may pursue the guarantor for the guaranteed amount. Their property could be at risk if the debt cannot otherwise be recovered. The arrangement may also restrict the guarantor’s own ability to sell, refinance or borrow.

The borrower and guarantor should understand:

• the maximum amount guaranteed
• which property or savings secure it
• when and how the guarantee may be released
• what happens if the property value falls
• the effect on the guarantor’s future plans.

Independent legal advice for the guarantor is commonly required and is sensible even where it is not. Family expectations should be documented rather than left to informal assumptions.

Option 4: The Australian Government Help to Buy Scheme

Help to Buy is a shared equity scheme. An eligible buyer contributes at least a 2% deposit and obtains a home loan through a participating lender. The Australian Government can contribute between 5% and 30% of the purchase price for an existing home, or between 5% and 40% for a new home.

Because the Government contribution reduces the bank loan required, Help to Buy can address both a deposit gap and a borrowing-capacity gap. LMI is not required under the scheme.

For applications assessed using 2026–27 thresholds, annual taxable income must generally be no more than:

• $103,000 for a single applicant
• $165,000 for a single-parent applicant
• $165,000 for joint applicants.

There are 10,000 places per year, property price caps and other eligibility rules. Applicants normally need to contribute their maximum reasonable deposit and use a participating lender.

The trade-off: you share future value

The Government contribution is not a grant or an interest-free loan with a fixed balance. The Commonwealth holds a proportional interest in the property. If the home rises or falls in value, the value of that share generally changes with it.

You may be able to buy back part or all of the share over time, subject to scheme rules. The share will also need to be dealt with when the property is sold. Renovations, refinancing, income changes and property use can carry additional obligations.

Help to Buy may create access to a home with a smaller bank loan, but the comparison should include the value you are giving up, the scheme’s ongoing requirements and your plan for buying back the Government’s interest.

Option 5: First Home Super Saver and other support for building the deposit

The First Home Super Saver scheme does not replace a home loan deposit. It provides a tax-effective way for eligible buyers to build part of it using voluntary super contributions.

You can contribute up to $15,000 of eligible voluntary contributions in a financial year, subject to an overall $50,000 contribution limit across all years. The amount released depends on whether contributions were concessional or non-concessional and includes associated earnings calculated under the scheme.

Timing matters. You need an FHSS determination before requesting a release, and the Australian Taxation Office says processing may take 15 to 20 business days after a valid request. Contract and release timeframes also apply. Get tax or financial advice if you need help deciding how contributions fit your circumstances.

State and territory first home owner grants and transfer-duty concessions may also preserve cash that would otherwise be used for purchase costs. They vary by jurisdiction, property value and whether the home is new or established. Check the relevant revenue office rather than relying on an old threshold or social-media summary.

How the main small-deposit pathways compare

A worked comparison: the same 5% deposit, two different outcomes

Consider an illustrative $700,000 purchase with $35,000 saved for the deposit, plus separate funds for applicable purchase costs.

Path A: 5% Deposit Scheme

If eligible and approved by a participating lender, the buyer could contribute the 5% deposit and seek a loan of roughly $665,000. LMI may be avoided, but the buyer must service the full loan and begins with about 5% equity before transaction costs and market movements.

Path B: Help to Buy

If eligible for a 30% Commonwealth contribution on an existing home, the Government could contribute up to $210,000. With the same $35,000 deposit, the bank loan could be substantially lower. The exact contribution is determined under scheme rules and the participating lender’s approved loan.

The smaller loan could mean lower repayments, but the Government would hold a proportional share in the property’s value. If a 30% share remained and the home were later valued at $800,000, that share would be worth $240,000 before considering any scheme adjustments, transaction costs or partial buybacks.

Neither path is automatically better. One prioritises full ownership with a larger debt; the other reduces the debt but shares future value.

What can go wrong when buying with a small deposit?

A low valuation creates a cash shortfall

Lenders generally calculate the LVR using the lower of the purchase price and their accepted valuation. If you agree to pay $700,000 but the lender values the property at $680,000, the loan may be based on $680,000. You may need extra cash to cover the gap as well as the agreed deposit and costs.

Every dollar goes into settlement

A pathway may allow a small minimum deposit, but using all available cash can leave nothing for moving, urgent repairs or an income interruption. Minimum deposit does not mean minimum sensible buffer.

The buyer assumes a grant can be used as genuine savings

Some lenders require evidence that part of the deposit has been genuinely saved or held for a period. Grants, gifts and recently borrowed funds may be treated differently. Confirm the evidence required before relying on money that has not yet been received.

The scheme rules do not match the property

Price caps, occupancy rules, construction timeframes and property types can affect eligibility. Check the exact property and postcode before signing, particularly for auctions, off-the-plan purchases, house-and-land packages and vacant-land builds.

Approval is mistaken for affordability

A low-deposit pathway changes the entry point, not the ongoing cost of home ownership. Test repayments at higher rates and include council rates, strata where relevant, insurance, maintenance and utilities. Falcon’s home loan calculators can help compare loan sizes and rates.

Questions to ask before choosing a pathway

1. Is my barrier the deposit, purchase costs or borrowing capacity?
2. How much cash will remain after settlement?
3. What would the repayments be if rates increased?
4. Will LMI be paid upfront or added to the loan?
5. What price, property and occupancy limits apply?
6. Does the option restrict future renting, refinancing or renovations?
7. If another party has an interest or guarantee, how and when can it be released?
8. What happens if I need to sell sooner than planned?

Also confirm how the proposed loan fits your borrowing capacity. A small deposit does not override the lender’s assessment of income, expenses, debts and higher-rate repayments. See Falcon’s guide to what affects home-loan borrowing capacity.

Small deposit does not have to mean rushed decision

The right pathway should solve the actual barrier while leaving you with manageable repayments and a clear understanding of the long-term arrangement.

Speak with Prasanth at Falcon Lending Solutions to compare the low-deposit options that may fit your savings, income, preferred location and property type. Falcon can help you test lender requirements, scheme eligibility and the cash needed at settlement before you commit to a property.

General information only. This article does not take into account your objectives, financial situation or needs. Credit approval, lending criteria, fees and conditions apply. Government schemes, thresholds and lender policies can change. Confirm current eligibility and obtain appropriate legal, tax or financial advice where needed.

Sources and further reading

• Australian Government First Home Buyers — 5% Deposit Scheme FAQs
• Australian Government First Home Buyers — Help to Buy Scheme
• Australian Government First Home Buyers — Help to Buy income and threshold updates
• Australian Taxation Office — First Home Super Saver scheme
• Moneysmart — Ways to buy a home sooner
• Insurance Council of Australia — Lenders mortgage insurance